In an interview with The Korea IT Times, Han Jung-wha, head of the Small and Medium Business Administration (SMBA), stressed that laying the groundwork for SMEs to stretch their creativity should be given priority as the Korean economy is going through a paradigm shift from a fast follower model toward a first mover one.
“To help SMEs compete on a level playing field with conglomerates, I will level the current uneven playing field,” Han added. He also revealed his plan to inject a bundle of support funds (startup fund + R&D fund+ policy fund) into startups.
Q: Is there a paradigm shift taking place in your SME policy to make them competitive
A: As the Korean economy outgrows the role of playing catch-up with others, S. Korea’s SME policies need to be recalibrated accordingly.
The nation’s SME policies should be revamped in a way that can help SME unleash their creative potential inside and ensure fair competition between SMEs and large companies. We now need “creativity-friendly, fair competition policies for SMEs.
While creating a virtuous cycle in the venture capital and startup ecosystem to attract young prospective entrepreneurs, we need to change the nation’s support for SMEs from a 'supply push' model to a 'demand pull' one in order to facilitate SME products’ smooth entry into the market.
Thus, SME policy should be two-fold: first, it should work towards rooting out unfair trade practices and preventing conglomerates from unfairly stealing ideas, technology and talent from SMEs. Second, it should remain creativity-friendly.
Q: Encouraging people to start their own business is important, but the survival of startups in the market is more important, isn’t it
The nation’s start-up survival rates drop 20 percentage points from 48 percent to 28 percent in the process of start-ups going through the valley of death (from 3rd year to 7th year), a critical period when startups struggle to commercialize their technologies. According to Statistics Korea (KOSTAT), 61% survived their first year, 48% their second year and 27.9% their seventh year.
Startups in the growth stage have difficulty finding a market for their products, but systemic support for them is paltry. In a bid to expand support for startups in their 3rd – 7th year, we’ve prepared a support package that consists of startup, R&D and policy funds.
In addition, we are working to provide one-stop solutions to the problems encountered by startups in the field and collaborating with relevant institutions to offer support in a concerted, organized manner.
For startups that aim to go global from the beginning, we’ve drawn up a ‘born global accelerator project’ that is scheduled to kick off next year.
Q: Could you elaborate on your strategy to fuel a venture capital boom
A: We’ve implemented policies to rev up the venture capital sector over the past two years. As a result, the nation’s startup boom heightened and investment in venture capital firms hit a record high, breathing greater dynamism into the venture capital ecosystem.
Still, not so many highly-skilled people summoned up their entrepreneurial spirit enough to start their own business. And the M&A market is still lackluster.
Our strategy consists of three parts: 1) building “success” bridges for venture capital firms 2) revitalization of disinvestment avenues such as M&As 3) facilitation of private capital’s inflows into the venture capital market.
Above all, this strategy actually mirrors what venture capital firms have thus far demanded: it contains ways to improve stock option systems as a means of recruiting top talent, revitalize M&As, prevent large companies from stealing ideas, technologies and talent from venture capital firms.
Q: TIPS Town has finally opened. What do you expect from it
A: TIPS (Tech Incubator Program for Start-ups) Town is designed to expedite networking between entrepreneurs and investors, information sharing and timely provision of custom-tailored support.
TIPS Town is a startup networking hub, where TIPS startup teams, venture capital firms and investment companies like startup accelerators (which engage in both business incubation and investment) all cluster together, thus creating a startup street and exploring better ways to enter the global market.
TIPS Town will be comprised of four buildings (a total ground area of 10,000㎡) in Yeoksam-dong, Gangnam-gu. TIPS Town, which housed 40 teams as of June, is expected to be home to nearly 160 teams (over 3,000 people), including ‘born-global’ startup teams, accelerators, venture capital firms and relevant institutions. They will gather under one roof to network and cooperate in venturing into the global market.
Furthermore, in collaboration with private startup accelerators like Maru 180, D.Camp and Naver D2 Startup Factory, TIPS Town will spread a culture of networking between investors and entrepreneurs.
Q: IM Shopping (www. imshopping.org), a public home shopping channel, has been launched. What is the key to putting IM Shopping on track
A: Since IM Shopping is dedicated to SME products, the success of the channel depends on the amounts of SMEs’ innovative products and agro-fishery and livestock products the channel can secure.
It is important to build a database of marketable products that were chosen from among SME products. We’re working on the development of a consolidated distribution platform to boost sales of such products.
Setting commission at 23% (the lowest in the industry), IM Shopping will solely sell SME products and agro-fishery and livestock products, with a view to raising the incomes of venture capital firms and farming communities.
Moreover, IM Shopping will not only sell products on its channel but also serve as a global distribution platform that opens the way for SMEs to enter the global market on the back of various export support programs.
Q: The MERS outbreak has battered the nation, especially mom-and-pop businesses.
The government will raise an emergency MERS fund to prop up hardest-hit mom-and-pop businesses and vendors at traditional markets. First of all, the government is preparing a KRW 200 billion MERS special fund to provide loans at low interest rates (2.64%). And a KRW1 trillion special credit guarantee program is also underway to help mom-and-pop businesses in MERS-affected areas get loans, regardless of their credit ratings (even people with poor credit ratings (e.g. level 8 or 9).
Q: Korean SMEs are suffering from a shortage of workers. What’s your solution to this problem
The number of unemployed people stood at 1,022,000. The number of jobless people in the 15-29 age group was 406,000 in May. As of April, SMEs (over 5 members) suffered from a shortage of 245,000 workers.
The underlying problem is a lack of high-quality jobs at SMEs. SME employees receive 61.5% of what those at large companies get. Besides, welfare for SME employees held at 52.4 % of that for their counterparts at large companies in 2013. The average annual salary of employees at SMEs is KRW 28,460,000, much lower than KRW 57,010,000 for employees at large companies.
The Bank of Korea’s study on job security and employee reward systems showed that 40% of the jobs at SMEs are high-quality.
Therefore, we try to improve the quality of jobs at SMEs through a rise in salaries for existing workers and improvements in work environments and employee welfare. Also, we are assisting SMEs in recruiting workers with different levels of skills.
There are also a 50% income tax cut, long service allowances (KRW 1 million a year), subsidies (50%) for social insurance (e.g. employment insurance, the national pension plan), Youth Heemang (or Hope) Kium Accounts (the mandatory period for nest-egg savings accounts was reduced from 7 years to 3 years)
Q: The expansion of FTAs has made it imperative for SMEs to make forays into overseas markets. What’s your plan
The domestic market is small. And the Korean economy’s dependence on overseas markets stood at 94.6% in 2012. It is very difficult for our export-driven economy to grow without exporting goods.
SMEs’ global expansion is not an option but a must because they have to find large markets and respond to changes in the global trade environment, such as FTAs.
Hence we will introduce a global competence diagnosis program to measure each SME’s capabilities and then offer them customized support in a bid to nurture them into exporters.
What’s more, we will dispatch exhibition and export market development teams (B2B) to overseas markets and will help sell Korean products though online shopping malls, overseas exhibitions and home shopping channels (B2C).
Under the China Highway Program, we will this year select 65 companies through evaluations and help them enter the Chinese market. We will help them draw up a road map for breaking into the Chinese market and our support will continue in the form of marketing, localization and R&D assistance. As for having products certified by Chinese authorities, we will assist Korean firms in getting hygiene permits and having medical equipment certified. Also, we will furnish solutions to various regulations imposed on labor management and work environments.
On top of that, information on approximately 5,000 laws and regulations (the central government + provinces) will be offered in Korean and Chinese. Information on any amendments will be swiftly shared and we will run online Q&A services to provide information in real time.
